If his goal was to stimulate a conversation with a rapid approach to concluding action, Energy Secretary Rick Perry has scored a victory with his recently proposed Grid Resiliency Pricing Rule.

During the past couple of weeks, the insular world of energy policy wonks has talked of little else, numerous congressional hearings have been held to gather the views of selected stakeholders, dozens of critical articles have been published, a detailed request for comments that address specific questions has been published and a broad coalition of opponents has formally filed an objecting motion.

On the 11th calendar day after Perry published his proposal to the Federal Energy Regulatory Commission (FERC), the Federal Register published the Grid Resiliency Pricing Rule. Comments will close on November 24 and the final action will be taken by December 11.

The rule as published in the Federal Register explicitly states that action should be taken “before the winter heating season begins so as to prevent the potential failure of the grid from the loss of fuel-secure generation–as almost happened during the 2014 Polar Vortex.”

Many of the forces that oppose the rule are focused on slowing the process in hopes that action can be delayed long enough to force a few more baseload power plants to retire prematurely.

Publicly Announced Alliance Between Trade Groups

Some energy business observers wrote that they were taken by surprise when solar and wind industry trade groups plus the American Council on Renewable Energy (ACORE) joined the American Petroleum Institute, the Interstate Natural Gas Association of America and the Natural Gas Supply Association to file a motion opposing the rule and the proposed action timetable.

All of those groups have a vested interest in continuing efforts to push coal and nuclear power plants to retire as soon as possible. They need those large power suppliers to leave the competitive market.

Their departure will give the survivors room to grow and to restore profitable pricing. No one is making any money at today’s electricity prices, but wind, solar and natural gas have more options to reduce overhead than their less nimble competitors. That gives them a longer runway with a greater ability to endure destructive pricing.

Natural gas, with its just in time fuel delivery model, its low capital cost and high operational cost concentration on fuel recognizes that it is a naturally flexible partner with wildly varying wind and solar generators.

Fuel cost can represent 75-90% of the total cost of operating a natural gas power plant. Nearly all operational expenditures disappear when the plant shuts down. That is the logical, cost reduction step to take if it stops selling power because the sun is shining, the wind is blowing or both happen at the same time.

Gas plants can make up for lost sales when the wind dies, the sun sets or both as long as power prices rise to reflect supply constraints. That can’t happen if too much of the demand is being met by steadily operating, reliable power plants whose fuel costs are not subjected to rapid changes in market price.

Low fuel cost plants like coal and nuclear [especially] can produce large amounts of electricity for nearly the same total cost as producing small amounts or not producing power at all.

Stated in conventional economic terms, the marginal cost of their next kilowatt-hour is at or close to zero, though they also have an unavoidable minimum cost of doing business. In both cases, the minimum cost has been drive up in recent years by targeted regulatory demands.

In order for them to be economic assets worth maintaining – by corporate owners that must deliver profits – they need to be able to sell all of the power they can produce while running as many hours of the year as possible.

Why Are Electricity And Gas Prices Low?

Electricity demand has not grown much since the Great Recession of 2008, but one of the major components of the American Recovery and Reinvestment Act (ARRA) was an expenditure of more than $25 billion dollars to stimulate the construction of new electricity generating plants powered by the wind and the sun.

Those newly built sources of electricity have had to push down production from existing sources because electricity supply cannot exceed electricity demand for any significant period of time. Combined with a rush to develop newly accessible natural gas and oil resources in the U.S. additional electricity production from wind and solar contributes to the oversupply of available natural gas.

Because it is a vapor at atmospheric pressure and temperature, methane (the largest component of the product marketed in the U.S. as “natural gas”) takes up a lot of space. It is almost as difficult to store as electricity so supply and demand need to be fairly closely matched, especially over the course of a year.

If there is too much supply, prices fall to encourage more use and to attract new markets. The logical response to excessively low gas prices should have also included efforts to slow drilling and reduce production, but there have been several factors that led to continued supply increases.

Drillers are heavily leveraged and often willing to produce more gas in an effort to generate enough revenue to pay minimum payments.

Some of the land that has been accumulated for gas production is leased with specific timetables for drilling in order to maintain the lease.

A fair portion of the gas production in the U.S. is known as associated gas; it is produced as a byproduct of oil drilling. If oil sales cover all of the costs of drilling and production, gas can be economically flared. That practice isn’t environmentally sound and is discouraged, but that means that the producers can sell at almost any price above zero and still book a profit.

Despite the dramatic drop in world oil prices that began in 2014, many drillers have not seen any reduction in their Reserves-Based Loan (RBL) lines of credit. Laura Freeman, a consultant in reservoir engineering and finance, recently published a detailed investigation of this unusual state of affairs.

It’s a lengthy and esoteric argument with some amount of math involved. Here is her conclusion.

By artificially inflating borrowing bases and then changing the rules, lenders are propping up companies and saving them from financial distress and-in many cases-probably bankruptcy. It also keeps banks from realizing enormous losses. However, it creates artificial market dynamics and prevents the corrections that should have been seen with huge over-leveraging followed by price collapse. … how long can the shell game last and who’s going to get caught out in the open?

The electricity market is attractive for gas suppliers because most generators will continue buying even if prices increase dramatically – at least over the short to medium term.

Representative Green from Texas made this goal clear during an October 5 hearing with groups that claim to represent consumer interests. “Obviously, we’d like to sell you more natural gas.”

At some point, demand will equal and then exceed the available supply. That will cause prices to recover. Historically, gas prices in competitive markets can rise more rapidly than they have fallen. Here is a graph of the monthly variation in natural gas prices for the past 20 years at the most commonly cited trading point in the U.S.

Natural gas prices delivered to Henry Hub 1997-2017

Suppliers Are United. What Should Consumers Think?

Though many of the invited witnesses have predicted that creating a cost of service-based tariff for power generation sources that can meet certain resiliency-related criteria will be detrimental to consumers, that opinion is in direct contrast to a recently released study by IHS Markit.

That study found that the current portfolio produced the following consumer-friendly results.

Lowers the cost of electricity production by around $114 billion per year

Lowers the average retail price of electricity by 27 percent

Avoids an annual loss of $98 billion in consumer net-benefits from electricity consumption

Reduces the variability of monthly consumer electricity bills by around 22 percent

Mitigates an additional $75 billion per hour cost associated with more frequent power supply outages

It appears that consumers should align with those who are attempting to maintain numerous supply options in the electricity market. A destructive, winner take all competition is not in the customer’s best interest even if market worshipers claim that price increases are merely signals to increase supply or reduce demand.

Energy prices and electricity reliability are important enough to the overall health of the economy that they should not be left solely to the biased decision making of a market whose structure was initially influenced heavily by Enron executives.

Many question the ability of the government to pick winners and losers. The first step is for the government to stop doing is picking losers to be winners and to stop forcing winners to exit the market to make room for less reliable and affordable technologies.

Note: A version of the above was first published on Forbes.com. It has been revised and published here with permission.

I reviewed the original study. It is neither defined, nor derived. The value just appears as a summary bullet. $75 billion per hour for a complete U.S. blackout is a meaningless metric. It would only make sense at a regional level such as New England or PJM where there are real possibilities of seasonal spot shortages from natural or man-made hazards. It would seem that the metric should be benchmarked against, say, the 2003 Northeast Blackout.

No one is making any money at today’s electricity prices, but wind, solar and natural gas …

It all depends on what you mean by “no one” or “making any money,” but this reader has a difficult time getting past this kind of unsupported statement, which looks blatantly false. Google finance sorts of energy sector by Annual Net Income gives about 12 pages with negative results, and about 10 pages with positive Annual Net Income. Sorts for Electric Utilities gives 3 pages in the black, and only a half page in the red. Companies are making money, especially electric utilities.

> methane … is almost as difficult to store as electricity > Here is a graph of the monthly variation in natural gas prices for the past 20 years at the most commonly cited trading point in the U.S.[showing large gas, not electricity, price variations]

Am I the only one who sees these natural (gas, and oil, coal, and uranium) supply/demand price variations as being similar to the natural variations in wind and solar supply (at earth surface)? Natural phenomena we should be adapting to by now.

> It appears that consumers should align with those who are attempting to maintain numerous supply options in the electricity market.

Real flex-fuel options would be a great start, but how do we push a transition from the fake flex-fuels we have now, to something more similar to those seen in Pump (2014)? How about a system to allow easy hookup and credit for PV at homes, without expensive paperwork designed to delay and add cost? Yes, we should align, but in more ways than you would probably like.

Does someone here have some history of how prices rose during the 2014 Polar Vortex ? Wasn’t there also some peaks in price more recently ? I would like to have some specific reference to point people who claims this is unneeded and will just increase prices to. I know I saw some of that at the price, but it’s not really easy to find back.

Also, “Fuel cost can represent 75-90% of the total cost of operating a natural gas power plant.” Forgotten in the description of the “Cost” of generating and delivering power is TAXES!

Look at your local electric utility Annual Report. Look at the percentage of taxes, federal, state, city, local, etc that they are paying. And those taxes are reflected in the number given as the value used for determining how much the power you are buying is. below that value on every energy bill I have ever gotten in 7 different states is a line for state taxes on the amount purchased. Typically about 7%. I have calculated the amount of taxes I pay by using the percentage of taxes paid in the annual Report for the taxes hidden in the cost of power/delivery and then adding the extra 7% taxes added on top of that number. both times it worked out that over 50% of what I am paying for electricity goes to Federal, state and local taxes. Even if the utilities came up with a super computer “smart” grid of solar/wind and hydro such that the cost of fuel was FREE, your electric bill will be larger than it is now.

I keep asking the following question, in dozens of article comments I’ve made:

How can it be that these coal and nuclear subsidies constitute an “unacceptable”, perhaps even illegal, intervention in the market, that will “destroy competition”, or “blow up” or “unravel” the wholesale power markets, whereas the heavy subsidies and outright mandates for the use of intermittent renewable sources are not an unacceptable market intervention?

I have yet to receive an answer.

California has a 50% mandate for renewables, and is considering 100%!! Such policies don’t merely affect competition, they call the competition off entirely and declare renewables the winner. Also, due to intermittency, CA’s renewables mandates are having and will have an enormous impact on the electricity markets in neighboring states.

Clearly those policies are much larger market interventions, and yet all these “experts” (PJM, etc..) seem to have no problems with them. Not a peep. Given this, I find it impossible to believe that their arguments are objective or genuine. Until and unless I get an answer, I will have to conclude that all of these people had certain outcomes (gas and renewables) in mind, and are throwing a tantrum at the notion of having policies change direction. They’ve spent a decade or more rigging the market to favor those outcomes, and now their work may be undone.

If this idea goes down, the nuclear industry should seriously consider a legal challenge to state renewables mandates, especially if legal arguments or challenges are used to bring it (Perry’s policy) down. Who knows, could be a good thing. It could set a legal precedent against large market interventions solely intended to ensure the use of politically-chosen pet energy sources. Ideally, the legal precedent would only allow the application of genuine, tangible external costs, e.g., a carbon tax, which then let the market decide how to respond.

“Energy business observers” claim to be surprised that gas and renewables interests are joining to oppose this policy? They can’t be serious.

Even if someone doesn’t grasp how the forced addition of intermittent renewables actually helps gas generation (as it causes “inflexible” coal and nuclear generation to be replaced by “flexible” gas generation), they should still be able to understand why both gas and renewables interests oppose this. It’s simple. These policies would help coal and nuclear, i.e., sources other than gas and other than renewables. Nobody supports subsidies for different sources, i.e., competitors. Gas and renewables don’t have to like each other for both of them to oppose subsidies for coal and nuclear. (Of course, we know that they DO like each other!)

No, they’re smarter than that. They’re not surprised at all. They are engaging in propaganda techniques. It’s all part of a narrative, that this policy is so bad that a diverse array of interests, including two industries that are “enemies”, are joining together in opposition. Makes for a compelling story……

“If this idea goes down, the nuclear industry should seriously consider a legal challenge to state renewables mandates, especially if legal arguments or challenges are used to bring it (Perry’s policy) down”

Maybe it is time it is challenged,…period. Would you buy a car that doesn’t run when the wind isn’t blowing or the sun isn’t shining? How about a computer? Would you go to the doctor to be made intermittently well?

A great fuss is being made by FERC about the security of our power system. It seems like these giant spinning windmills and the solar panels make a pretty easy target for even a World War 1 airplane.

Let the buyer beware and these days with a surplus of information, it is very difficult for common sense to shine through. I could continue on this topic with single payer health care, but that doesn’t belong here.

Any moment now in the ‘news’: the proposed 90-day ruling is ‘nothing’ but Trump’s ‘fat cat payback of his campaign promise to coal’. It will be structured in the same way as the Russia collusion juggernaut, a relentless barrage with allegations of cheap political graft by a thuggish corrupt politician. Some will toss their heads to add, ‘nuclear’ but not so often.

The faux-environmentalist narrative requires that base load nuclear be scarcely ever mentioned. Too many people are starting to consider and admire it earnestly. The press must be proactive in disenfranchising nuclear even if it takes them off-topic, which means for example to have a handy segue or sidebar ready to conflate it with some past disaster, leak or cost overrun.

What if during a routine newscast delivering market stats on oil and gas, the announcer would stop suddenly — and serve up vignettes with dramatic footage of past refinery explosions, fiery train derailments and well blowouts? The same clips and graphics day after day? The audience would become irritated, easily perceiving that a ruse was in play. Yet it happens with nuclear.

This is war. What Trump clumsily calls “fake news” I call “news with claws out”. The battle lines are just as I predicted in previous posts. Ironically coal will survive, it isn’t at risk because there will be no irrevocable shutdowns or greenfield decommissioning imposed. For nuclear this is your last battle. What people mistake for blustery bravado in Trump is the only effective way to stand up to bullies. Time to get mad.